Shanxi Huhua Group's (SZSE:003002) Upcoming Dividend Will Be Larger Than Last Year's

The board of Shanxi Huhua Group Co., Ltd. (SZSE:003002) has announced that it will be increasing its dividend by 67% on the 29th of May to CN¥0.25, up from last year's comparable payment of CN¥0.15. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

Check out our latest analysis for Shanxi Huhua Group

Shanxi Huhua Group's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, based ont he last payment, Shanxi Huhua Group was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

If the trend of the last few years continues, EPS will grow by 16.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Shanxi Huhua Group's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 3 years was CN¥0.40 in 2021, and the most recent fiscal year payment was CN¥0.15. Dividend payments have fallen sharply, down 63% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's encouraging to see that Shanxi Huhua Group has been growing its earnings per share at 17% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Shanxi Huhua Group's prospects of growing its dividend payments in the future.

Our Thoughts On Shanxi Huhua Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Shanxi Huhua Group's payments are rock solid. While Shanxi Huhua Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Shanxi Huhua Group that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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